Why the government would have us pay more for poorer health

Authors

Disclosure statement

John Attia receives funding from the National Health and Medical Research Council, the Australian Research Council, Hunter Medical Research Institute, and the HCF Foundation.

John Duggan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

The Coalition government has been claiming that Australia’s public health system is unsustainable since the 2014 budget. But its plans for the health system actually reflect the underlying belief that user-pays health systems are better – despite evidence to the contrary.

Less than a year and a half into the Abbott government’s first term, we’re on our second health minister and the third iteration of some kind of plan to introduce a co-payment for seeing a doctor. Despite widespread and vocal opposition to its plans, the government remains committed to introducing this price signal into the public health system.

Underpinning this move is the government’s commitment to a user-pays health system. But there’s now a large body of evidence showing such systems not necessarily great for the nation’s health. Here are four common ideas about market-based health systems and why they are not true.

Myth one: market forces increase efficiency

The administrative costs of Australia’s public health system are considerably lower than that of the private health insurance sector. So while this cost for Medicare is around 6% per year, the 2012-13 private health insurers’ annual report estimates that 15% to 18% of private health insurance premiums go towards administration.

Both these figures are similar to those in the United States, the country with the most expensive health-care system in the world. Figures from the OECD estimate that, in 2011, the per capita health cost in the US was US$8,508 (A$10,912) per head or 17.7% of GDP, compared to Australia, where the figure was US$3,800 (A$4,875) per head or 8.9% of GDP.

But the US figure quoted above is effectively still an underestimate. The premiums for about half the Americans who have health insurance are paid by their employer; they are essentially a business deduction underwritten by the taxpayer.

The inefficiencies of the market-based system are also apparent when comparing costs for similar conditions. Health insurance industry figures from a 2013 report show the average total reimbursement for a private hospital appendectomy in the United States is A$17,770 (US$13,851), while the cost for the same procedure in Australia is A$5,467.

Both the former and current Coalition health ministers – Peter Dutton and Sussan Ley – have insisted on introducing a price signal for GP visits.Gary Schafer/Alan Porritt

Myth two: market forces increase quality

There’s no lack of evidence showing the market forces operating par excellence in the United States offer inferior health care when compared with public health systems. OECD data comparing mortality rates in member countries between 1980 and 2005, for instance, show only Portugal has had a smaller fall in adult mortality rates than the United States.

And although it spends the highest proportion of GDP on health internationally, the United States ranks 19th in infant mortality, 43rd in female mortality and 36th for life expectancy.

This is not to say that US health care cannot be outstanding; it just comes at a price rendering it grossly inequitable. Consider this 2008 study of 121,092 Americans admitted to hospital with bleeding from liver cirrhosis. It found likelihood of death was significantly higher for certain groups.

By contrast, a 2011 English study of gastric bleeding in 245,438 patients found that, once hospitalised, the risk of bleeding and mortality was independent of social class. So in England, an unemployed street sweeper with gastric bleeding faces a similar risk of death in hospital as a stockbroker. But the stockbroker would have a much better outcome in the United States.

It’s also important to remember that more care does not necessarily equate to better quality care. The Institute of Medicine recently estimated the excessive annual cost of systemic waste in the US health-care system at US$765 billion. This is almost 30% of total health expenditures.

Over-servicing is a big problem in private health-care systems, where profits can create a perverse incentive to treat. Indeed, they potentially create a conflict with purely medical reasons for treatment.

A landmark 1970 analysis (not available online) comparing surgery and surgeons in the United States and in England and Wales showed that the former, with its fee-for-service system, had twice as many surgical procedures as the latter places, both of which have public health systems. A 1973 analysis found a similar doubling of discretionary surgical rates in fee-for-service Canada compared to the United Kingdom.

Myth three: public health care is unaffordable

A number of studies indicate that it is actually private health care that’s unaffordable. It’s estimated that almost two million people in the United States declared bankruptcy due to medical bills or conditions in 2013.

Despite widespread and vocal opposition to its plans, the government remains committed to a price signal for GP visits.NEWZULU/PETER BOYLE

That makes health care one of the biggest issues affecting bankruptcy in that country. Worse still, the majority of these bankruptcies were expected to affect people in the prime of their working lives, between the ages of 35 and 55.

Worse still, the problem may be snowballing: a 2009 study found medical reasons for bankruptcies had increased from 46.2% in 2001 to 69.1% in 2007. Most medical debtors were well educated, owned homes and had middle-class occupations, and 75% had health insurance.

Despite the Coalition government’s warnings to the contrary, health-care costs are not spiralling out of control. According to an Australian Institute of Health and Welfare report on health spending for 2012-13, growth in health expenditure was the lowest since the mid-1980s.

In fact, the average health expenditure per person fell from A$6,447 in 2011-12 to A$6,430 in 2012-13. This puts Australia’s health spending as a proportion of gross domestic product at 9.4% in 2012, just above the OECD average of 9.2% – and much lower than the cost of the US market-based system.

Myth four: price signals work

Indeed, the government’s commitment to price signals is itself rather problematic. Price signals temper consumption by making people consider whether what they are about to buy is worth the cost. This makes them ill-fitted to the health-care sector, which is not an optional commodity subject to the same thinking that influences decisions to buy a television or a pizza.

The latest evidence about co-payments comes from the introduction of the 2005 Deficit Reduction Act in the United States, which allowed states to introduce emergency department co-payments for non-urgent visits. A very recently published analysis of figures from eight states that charged a co-payment and ten states that didn’t showed no difference in annual number of emergency department admissions, visits, or inpatient days.

Evidence to date is overwhelmingly against the privatisation of medicine. By pulling together in a public system, citizens get better value and the government gets better outcomes.

Along with education, health is a basic pillar of a just society. It represents government investment in the country’s social capital – its people. Failing to provide these adequately and equitably will reduce Australia’s productivity, competitiveness and, in the end, the sense of social cohesion that comes from equal access and equal opportunity.